Jeff Bezos, the creator of Amazon, is renowned for shunning Wall Street’s fixation with profits and insisting that the consumer is always more significant.

While Andy Jassy, his successor, likewise talks frequently about servicing consumers, investors have compelled him to take seriously profitability. His efforts are bearing fruit, too.

Amazon surprised investors on Thursday by reporting earnings of 65 cents per share, well exceeding the 35 cents per share consensus. In extended trading, the company’s stock rose by approximately 9%.

In February 2021, when results for the fourth quarter of 2020 came in at $14.09 per share, nearly double analyst expectations, Amazon last posted an earnings beat that large. Bezos’ resignation as CEO was unexpectedly announced by the business at the same time, shocking investors.

In July, Jassy finished his second year in charge. Amazon has become a leaner version of itself under Jassy as decreasing sales and a difficult economy forced the business to abandon the unrelenting growth of the Bezos years. Investor pressure increased as they saw the stock’s value drop by half in 2022.

In riskier, more recent industries like healthcare and groceries, Jassy reduced unsuccessful projects, halted corporate hiring, and cut 27,000 positions.

Cost-cutting was a major focus in Jassy’s prepared remarks at the beginning of Thursday’s earnings call.

He focused on measures the business has implemented to lower costs in its fulfilment system, such as switching from a national network to a “series of eight separate regions serving smaller geographic areas.”

“We keep a broad selection of inventory in each region, making it faster and less expensive to get these products to customers,” he said.

In contrast to the prior year’s same period, when the sector lost $627 million, Amazon reported that its main business of selling goods in North America generated $3.21 billion in revenue.

The corporation is now less reliant on its cloud division, Amazon Web Services, for profits as a result of the extensive adjustments made under Jassy. AWS, which offers businesses all around the world cloud infrastructure and a variety of software services, has frequently been responsible for all or nearly all of Amazon’s profits.

Amazon was able to increase its total margin in the second quarter, but AWS saw a decrease in its profit margin, which dropped to 24.2% from 29% a year earlier.

AWS exceeded revenue projections for the quarter. But since Amazon started separating out its revenue in 2015, the cloud business has grown at a rate of barely 12% year over year.

Jassy wants investors to adopt a new perspective on it. As economic worries overtook corporate America last year, businesses looked for ways to cut costs, which included figuring out how to pay less for cloud services. According to Jassy, AWS assisted them in their “optimisation,” resulting in higher production at a reduced cost.

According to Jassy, this pattern has persisted, making the cloud unit’s growth rate an astounding performance given that it already generates more than $20 billion in sales each quarter.

“To still grow double digits on a base that size means that we’re acquiring a lot of new customers and a lot of workloads,” Jassy said, near the end of the call. “I’m very bullish of the growth of AWS over the next several years.”

Jassy and other Amazon executives have not been slow to remind investors that the cloud business should benefit from the current craze surrounding generative artificial intelligence. According to Jassy, traditional types of AI and machine learning have recently contributed significantly to AWS’s profitability, and generative AI is predicted to encourage increased uptake of its cloud services.

To finance its AI ambitions, Amazon will presumably need to boost its capital expenditures, though.

“One of the interesting things in AWS, and this has been true from the very earliest days, the more demand that you have, the more capital you need to spend, because you invest in data centers and hardware upfront, and then you monetize that over a long period of time,” Jassy said. “I would like to have the challenge of having to spend a lot more capital on generative AI because it will mean that customers are having success, and they’re having success on top of our services.”

(Adapted from CNBCTV18.com)

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